‘One in four councils could lose money' under Government's funding proposals

Yahoo

2 days ago

Around a quarter of councils in England could lose money under the Government's proposed reforms to how local authorities are funded, analysis has found.
A report from the Institute for Fiscal Studies (IFS) said the changes would create big 'winners and losers' as ministers attempt to address perceived unfairness in levels of core funding across the country.
Sir Keir Starmer's own council, Camden in north London, will be hit by the reforms when taking inflation into account, the IFS added.
The think tank said Camden, along with other inner London boroughs including Westminster, will have less money to spend on services even if they increase council tax by the maximum amount allowed.
Whitehall will provide a minimum level of funding, a so-called funding floor, for council leaders during the changes, but the IFS said overall cash for inner London town halls would be 11-12% lower in 2028-29 in real terms.
The paper said: 'Around one in four councils would see real-terms falls in overall funding under the Government's proposals, with around 30 on the lowest funding floors seeing real-terms cuts of 11–12%. Conversely, another one in four councils would see real-terms increases of 12% or more.'
The changes, which will come into effect from next year, are being consulted on by ministers.
The Government plans to create a new methodology to assess local authority needs relatively and factor in population and deprivation. It will also assess need for adult and children's services.
Overall spending will fall for 186 councils and rise by the same total sum for 161. One in 10 will see a fall in overall funding, while one in 10 will see an increase of 10% or more.
The overall Government spend on local authorities will not change. The changes will be phased in across three years, from 2026/27 to 2028/29.
Kate Ogden, co-author of the IFS report and a senior research economist with the think tank, said: 'England has lacked a rational system of local government funding for at least 12 years – and arguably more like 20. It is therefore welcome that the nettle of funding reform is being grasped, and some councils will benefit substantially under the new system.
'But the changes will sting for those councils that are assessed to currently receive too high a share of the overall funding pot, and so which lose out from moves to align funding with assessed spending needs.'
The proposals are criticised in the report as 'not particularly redistributive to poor, urban areas of England'. It cites South Tyneside and Sunderland councils being among those to lose out from the reforms as slow population growth is accounted for.
The report added: 'It is somewhat surprising that, on average, councils in the most deprived 30% of areas would see very similar changes in overall funding over the next three years to those for councils in the middle 40% of areas.'
It noted that rural areas, which feared being badly hit by changes, will benefit from a 'remoteness adjustment' which will compensate areas with higher needs due to being far from large towns.
London will gain the least, with a cash-terms increase in funding of 8% in the next three years. Analysis by the London Councils collective has highlighted the risk of the funding 'dramatically underestimating' needs for local services in parts of the capital.
It noted the city has the highest rate of poverty in the country when housing costs are factored in.
Outside the capital, the East Midlands (22%) and Yorkshire & the Humber (19%) are set to see the biggest increases in funding, with the South East set to see the smallest at 13%.
However, the proposals have been criticised by youth charity the National Children's Bureau, which said it was 'significantly concerned' about the way the Government plans to work out needs for children's services.
Ms Ogden added: 'The Government should consider giving highly affected councils which currently have low council tax rates greater flexibility to bring their council tax bills up to more typical levels to offset funding losses.
'More generally, reform of council funding allocations is just one part of the financial sustainability puzzle. Efforts to reduce demands on, and the cost of providing, local services through reform and the use of new technology will also be vital.'
A spokesperson for the Ministry of Housing, Communities and Local Government said: 'The current, outdated way in which local authorities are funded means the link between funding and need for services has broken down, leaving communities left behind.
'That's why we are taking decisive action to reform the funding system so we can get councils back on their feet and improve public services, with the IFS recognising that our changes will better align funding with councils' needs.'